The reaction to a crisis can define a company — and more than mere survival, good preparation for a worst-case scenario can even result in an enhanced reputation.
Some 20 or 30 years ago, companies hit by a crisis had time to evaluate the situation and craft a strategy from scratch, safe in the knowledge that they had a window before the evening TV news and the next day’s newspapers. But the immediacy of social media and the 24-hour news cycle has changed all that, underscoring the importance of having a crisis plan, and a crisis team, ready to go.
As Qantas, Optus and PwC all discovered in 2023, a crisis can strike at any time and the stakes are high, threatening a company’s reputation and profits — potentially even the survival of the company itself. A company’s reaction to a crisis will define that company for some time afterwards.
John Connolly FAICD, a long-time corporate crisis manager with John Connolly & Partners, says companies should start their crisis planning with the objective of ending up in a better place reputationally than before the crisis hit.
Many executives and directors approach a crisis as a communications problem — if only they had a better PR team or could get their message across, they’d be fine. In reality, most crises stem from operational issues — think network outage, mine collapse or ransomware demand — and this should frame the response, says Connolly.
Companies need someone inside or outside the organisation to say, “Look, no amount of smart publicity is going to solve this. We need to see it as an operational issue then treat it like that by owning up, taking responsibility and saying that we won’t do it again.”
According to Connolly, the gold standard in crisis response remains Johnson & Johnson’s handling of the Tylenol crisis in 1982 in the US, when seven people died after taking cyanide-laced capsules of Extra-Strength Tylenol. J&J recalled 31 million bottles of Tylenol capsules from shelves and offered safer tablets as a replacement free of charge. The recall and relaunch of Tylenol cost the company more than US$100m, but the success of the strategy was demonstrated by the company’s share price, which recovered its previous highs only two months later.
In fact, companies can earn a slice of trust during a crisis, says Arash Rashidian GAICD, a principal with Lighthouse Advisory and an AICD facilitator. “If you do what you said you’re going to do, and continue to act with integrity and competence, then it’s not unusual that you realise an unusual dividend: your reputation goes up past where it was before the event occurred,” he says.
When a crisis strikes, companies should start with an acknowledgement that they are seeing the situation through stakeholders’ eyes to buy themselves more time to investigate the crisis and to plan and communicate their response.
If they do an inadequate job of managing and communicating the crisis and dealing with important stakeholders, others might take their “step-in rights”, resulting in executives and boards losing some of the levers they had to manage the crisis, says Rashidian.
When Optus had its national network outage last year, it was accused of failing to keep the public and other stakeholders properly informed. The federal government then started looking over the telco’s shoulder to ensure it was doing an adequate job. And when PwC Australia was reeling from the tax advice scandal that came to a head last year, PwC Global stepped in, disregarding the local partnership, to appoint new CEO Kevin Burrowes.
Lawyer in the house
Key members of any crisis team are a company’s general counsel and/or external lawyers. Their importance in a crisis has grown over the past decade.
“GCs are in a unique position of both understanding the legal framework in which a crisis is to be managed and the implications for the organisation,” says Lea Constantine, who as head of the work, health and safety practice at Ashurst has been involved in many corporate crises. “They also have a very good insight into the operational, commercial and people aspects.”
When companies confront a crisis, the health and safety of staff and customers is the first consideration, quickly followed by the legal advice, lawyers say. Constantine notes that disagreements on the handling of a crisis usually centre around the timing of communications and how much a company should say — with the comms team wanting to communicate quickly to calm down shareholders and customers. GCs can help navigate these challenging decisions with a rigorous oversight of the facts, to ensure nothing is represented as factual too early.
“All corporations need to be very, very measured, particularly in that early 24 to 48 hours of a crisis, when often you don’t know all the facts and you’re trying to find them,” says Constantine.
Teresa Handicott FAICD, who was a corporate lawyer at Corrs Chambers Westgarth for over 30 years, says good in-house lawyers are used to helping management and the board balance risk, commercial realities and shareholder and stakeholder interests. They will rarely say “don’t do that” unless they legally can’t. A good lawyer will present the board and management with the various options for managing the crisis and a matching risk matrix.
“A lawyer who just says ‘no, no, no’ is a pretty useless lawyer,” says Handicott, a non-executive director of Downer EDI and formerly of PWR Holdings.
Usually, when a crisis hits, a company wants to keep operating while they deal with it. This was the situation Handicott and her fellow Downer EDI board members found themselves in when the COVID-19 crisis struck. The company had workers in public transport, cleaning, feeding people in hospitals and other essential services, so needed to keep operating. The first consideration was the safety of staff, which required Downer to work with its health and safety team, and its customers.
After that, it was about risk analysis, considering what needed to be done to keep services going and what the potential risks were. “Every day, there are risks, it’s just in a crisis, there are more of them,” she says. “You just analyse what the risks are and the workarounds to manage those risks appropriately. You’re doing the same thing you do every single day, it’s just that it feels like the stakes are higher.”
A crisis is just like normal business on steroids — managers and directors need to be fast and versatile. According to Handicott, a crisis is the time when directors really need to step up and become involved.
“If the company goes broke because of the cash flow, if someone’s injured, if it’s some sort of safety or environmental disaster that follows, it’s the director’s responsibility,” she says. “Invariably, when there’s something we would call a crisis — not just a day-to-day crisis — the directors are responsible. So you’re going to do whatever work is required for you to make the best possible decisions you can make throughout that period. The reason we have boards is because all these people have seen so much throughout their careers — they have been in this position. It’s often the time when management values you the most.”
Managing surprises
It’s not just company executives in the sights of the public and government when a crisis strikes — directors, particularly chairs, can sometimes also feel the heat of public opinion. In some cases, they might well decide to move on to other jobs.
Sue Cato AM, of communications and issues management advisory Cato & Clive, says taking care of a company’s reputation is about managing surprises. “Where you get a bad reputation is when you surprise people,” she says.
An organisation that claims to be family- oriented, but then does something completely at odds with that claim, will get a bad reputation. Being misleading, intentionally or not, will also lead to a loss of trust. Conversely, if companies do what they say they’re going to do, they earn trust and burnish their reputations.
Cato looks at the endgame as companies get to know information during a crisis. “Let’s get there as fast as we can,” she says. “If ultimately you’re going to have to say A, B, C, D — do it upfront.”
She says a crisis plan needs to be more than something that sits on a computer screen, and directors need to ask key questions. Has the company actually practised the plan? Have the members of the rapid response team been chosen? Is there a war room?
Can the company continue with business as usual if key staff are in the rapid response team? Is there planning in case the CEO or chair are on an international flight from Sydney to New York? A company can prepare any number of crisis scenarios, but when the crisis hits, it won’t be the exact one modelled. Companies need a process whereby they can ask the questions to identify exactly what the problem is, work out who’s in the team and how to start diving in.
Who’s in the crisis team isn’t always a straightforward question. Some CEOs might be better getting on with business as usual and leaving others to handle the crisis.
Nor is it always the CEO who should be the public spokesperson in a crisis. If there’s been a trauma inside the company, the CEO might be busy dealing with those involved. External advisers need to be in place so the company doesn’t spend days searching for the right ones and arranging for agreements and non-disclosure agreements to be signed in the very midst of a crisis.
A major mistake Cato sees is companies making statements and claiming they know what’s going on when they don’t, because they want to look as if they’ve got their arms around a problem. She says a better approach is to be truthful.
“Just say, this is what we know, this is what we’re doing about it and as we know more, we’ll keep you briefed.”
Hive of activity
Australia’s bee industry had more than a decade planning for a biological incident and expected the varroa mite would eventually land in Australia as it was the last continent to be free of the pest. Under the leadership of the Honey Bee Council, the industry had run several crisis simulations. However, the varroa mite incursion now hitting the industry hadn’t been simulated because it was much larger and more established than had been planned for.
Even so, says Honey Bee Council CEO Danny Le Feuvre GAICD, the other simulations were a valuable exercise. “It still provided the same structure, the same initial plans, which we’d already agreed to with industry parties and government,” says Le Feuvre, also a non-executive director of AgriFutures Australia. “All that went to how we anticipated, planned and scenario practised for that to occur.”
The industry estimates the varroa mite will force about 30 per cent of beekeepers to exit the industry and wipe out 95 per cent of feral bee populations, causing problems for farmers who rely on feral bees for pollination.
The initial crisis simulations a decade ago drew on a template for managing a plant-related biosecurity event and were useful to determine if it was fit for purpose, given the mobile nature of the bee industry. The Honey Bee Council devised a response plan and sought agreement from the industry and relevant government departments. It also outlined bee euthanasia plans and how owners would be compensated.
Contamination scare
At 1pm on Friday 13 February 2015, Patties Foods MD and CEO Steven Chaur GAICD received a call from the Victorian Department of Health and Human Services (DHHS) telling him the company’s 1kg packets of Nanna’s frozen mixed berries were associated with cases of hepatitis A. Chaur and the DHHS agreed they would both investigate further, but the DHHS then put out a statement naming Patties, despite Chaur’s pleas. The company was plunged into a crisis.
Nothing had shown up in earlier routine tests in Australia, or in China where the berries came from, but the company retested their berries, going so far as to send samples to Italy and the US for advanced testing for hepatitis A. All tests were negative, and Chaur, now a corporate and board adviser, says there is still no evidence that the infection came from Patties’ products. Even so, the company recalled them from the market. Nonetheless, there was a media firestorm, with vitriol directed at Patties.
“My initial reaction was to be front and centre, to be in the media, talking to the public, putting statements out, informing retailers — so people didn’t feel we were hiding under a rock,” says Chaur, formerly a non-executive director of Meat & Livestock Australia and Wingara AG.
The strategy paid dividends, turning public opinion around. “Once the vitriol subsided, people started to understand this wasn’t an easy situation, the facts were ambiguous and Patties as a good corporate citizen was trying to do everything it could to alleviate the health risk, but also trying to make sure the product was still available in the market. That it was safe, more importantly.”
In an effort to also reverse political opinion, Chaur and chair Mark Smith,a former Toll Holdings director, lobbied Industry Minister Ian Macfarlane FAICD, explaining they were an Australian-owned regional employer.
Patties Foods recovered quickly in the short term. In fact, Chaur says, the Nanna’s brand grew by 20 per cent in 2015, which he puts down to the company not hiding from the contamination scare and being authentic and responsible in the way it managed the recall.
However, despite surviving the immediate crisis, the company wasn’t out of the woods. After reporting an 88 per cent drop in profits and with its share price stalled, Patties sold off its frozen berry business in early 2016, stating it wanted to concentrate on its core baked goods business. Then, just over a year after the health scare, in November 2016, the company was sold to Pacific Equity Partners and delisted from the ASX.
This article first appeared under the headline 'Troubleshooting’ in the March 2024 issue of Company Director magazine.
Image pictured above: Former Optus CEO Kelly Bayer Rosmarin speaks during an inquiry into a national outage of the Optus network at Parliament House in Canberra, Friday, November 17, 2023.
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